non-technical risks and their impact on mining - trench, sykes & packey - oct 2010 - ausimm...

NON-TECHNICAL RISKS AND THEIR

IMPACT ON THE MINING INDUSTRY

Allan Trench123 FAusIMM

Daniel Packey12 MAusIMM

John P. Sykes124† MAusIMM

† Today’s presenter: [email protected]

[1] Department of Mineral & Energy Economics, Curtin University, Australia

[2] Centre for Exploration Targeting, Curtin University & The University of Western Australia

[3] CRU Group, United Kingdom

[4] Greenfields Research, United Kingdom

AusIMM Monograph 30 (Mineral Resource & Ore Reserve Estimation) Roadshow

30th October 2014, Perth, Australia

Monograph 30 – Mineral Resource & Ore

Reserve Estimation – The AusIMM Guide

to Good Practice. Second Edition. Chapter

7: Risk in Resource and Reserve

Estimation: pp. 605-618.

mailto:[email protected]

AusIMM Monograph 30 (Ore Reserve and Mineral Resource Estimation) Roadshow, Perth, Australia

What is the paper about?

• A classification and definition of non-technical risks

• Focus on ‘country risk’

• Some resources available for (subjectively) assessing ‘country risk’

• Some personal perspectives on non-technical risk in the mining

sector

– This is the really interesting and worrying bit!

30 Oct 2014 Slide 2 of 75 Non-Technical Risks and Their Impact on the Mining Industry


A classification of non-

technical risks in mining

Non-Technical Risks and Their Impact on the Mining Industry

30 Oct 2014 Non-Technical Risks and Their Impact on the Mining Industry Slide 3 of 75


Non-technical is one type of mining risk

Mining Risk

Safety Risk Non-Technical

Risk Technical Risk

30 Oct 2014 Slide 4 of 75

Refer to relevant parts of

Monograph 30: Mineral

Resource & Ore Reserve

Estimation

Refer to the Australian

Mine Safety Journal

(and other relevant

publications)

THIS PAPER!


Source: Trench et al., (2014)


And several types of non-technical risk

Non-Technical Risk

Geographical (Country)

Commodity Prices

Exchange Rates

Corporate (Going

Concern)

Unlawful Activity

‘Other commercial’




Country risk being particularly complex

Geographical (Country) Risk

Resourc

e

Nationalis

m

Land A

ccess

Land C

laim

s

Red T

ape

Gre

en T

ape

Corr

uption

Civ

il U

nre

st

Infr

astr

uctu

re

Socia

l U

nre

st

Natu

ral

Dis

aste

rs

Labour

Rela

tions




But price & x-rate usually biggest risk The Kipawa rare earth project is most

sensitive to commodity price risk

The Prosperity copper-gold project is

most sensitive to exchange rate risk


Sources: Trench & Sykes (2014); Saucier et al. (2012); Reproduction of Jones (2007)


Resources for assessing

non-technical risks in mining




(Subjective) Resources for country risk


Sources: Trench et al., (2014); Wilson et al., (2014); Multilateral Investment Guarantee Agency

(2013); Schwab et al., (2013); World Bank (2013); Transparency International (2013)


Personal perspectives on

non-technical risks in mining




Consider non-technical risk early

“One approach that has been observed is where companies first complete the

geological and technical work, then later seek to tackle the non-technical

aspects of a project. This approach may be in part reinforced by the JORC

[and NI43-101] codes, which first call for geological delineation of Mineral

Resources, then economic proof of concept. Non-technical risks should be

assessed, monitored and discussed from the exploration stage to help with

stage-gating of project decisions.”




Consider non-technical risk early


RESOURCES

RESERVES

GEOLOGICAL CERTAINTY

EC

ON

OO

MIC

FE

AS

IBIL

ITY

‘McKelvey” Reserve Box Theoretical Reserve Box

RESOURCES


EC

ON

OO

MIC

FE

AS

IBIL

ITY

RESERVES RESERVES

Sources: Sykes & Trench, (2014a); Sykes & Trench, (2014b)


Integrate the technical & non-technical

“Non-technical risks are often considered as being separate to technical risks,

with different people and functions within a company assigned to deal with

each. We take the view that non-technical and technical risks cannot be

entirely isolated from each. It is the authors’ view that an integrated approach is

required in evaluating both risk types early on in the assessment of potential

mining projects.”




Integrate the technical & non-technical


RESOURCES

RESERVES


EC

ON

OO

MIC

FE

AS

IBIL

ITY


EC

ON

OO

MIC

FE

AS

IBIL

ITY

RESERVES

RESOURCES

Sources: Sykes & Trench (2014a); Sykes & Trench (2014b); United Nations Economic Commission

for Europe (2013); CRIRSCO (2013); Otto & Cordes (2000); Cook & Sheath (1997)


Take ownership of non-technical risk

“It is noted that companies have a tendency to treat technical risks as

‘internalities’ and non-technical risks as ‘externalities’, but the division is not

clear cut. As a consequence a lot of effort may end up going into solving

technical problems as these are seen within the company’s responsibility, while

less effort is applied to externalities as there are (wrongly) deemed as entirely

beyond the company’s control”




Take ownership of non-technical risk

0

20

40

60

80

100

120

140

No. Pages in AusIMM Monograph 30 by ‘Factor’ in the JORC Code

Social

Infrastructure

Environmental

Legal

Marketing

Economic

Processing & Metallurgy

Mining

Geological

General


Non-technical?

Source: AusIMM (2014)


Make choices about non-technical risk

“It is tempting for companies to take the view that nothing can be done to avoid

non-technical risks. This also isn’t true: if you decide to enlarge an open pit in

an environmentally sensitive area, it is not unreasonable to expect permitting

issues. These are choices – not issues beyond a company’s control.”




Make choices about non-technical risk


Greater

Project Risk

Needs

Increased

Scale to be

Economic

Increasing

Social &

Environmental

Footprint

A large, low grade

deposit in a

developing country

without an

established mining

culture…

Source: Trench et al., (2014); Sykes & Trench (2014a)


Constantly monitor non-technical risk

“In the authors’ view, the mining industry globally has reached an

understanding in recent years that non-technical risk does not simply

diminish once a project is constructed. That is, non-technical risks may

never be solved – merely mitigated – so continuous monitoring is

appropriate. For example, a mineral right and land access claim may seek to

be revoked if the government or sentiment around the mine changes.”






Ris

k

Change in risk type through the mine project development stage

Corporate

Risk

Technical

Risk

Sources: Modified from Trench et al., (2014); Trench & Packey (2012)




Ris

k


Corporate Risk Technical Risk Sources: Modified from Trench et al., (2014); Trench & Packey (2012)

Non-Technical Risk:

Commodity Price?

Lo

wer

Pri

ces

Hig

her P

rices




Ris

k



Non-Technical Risk:

NIMBYism?

Corporate Risk Technical Risk




Ris

k



Non-Technical Risk:

Political Risk? Elections

Unsupportive party elected

Unsupportive

party

unelected Risk

increases as

project

advances

Corporate Risk Technical Risk


Get into the detail of non-technical risk

“Non-technical risk assessment is at an early stage of development in the

industry and requires considerable further work. For instance, it is common to

hear of risk maps at corporate offices with whole countries crossed out… such

an approach lacks granularity, as different regions within countries offer very

different risk profiles. Different commodities also present different non-technical

risk profiles, so again very different non-technical risk profiles may be

generated within the same country.”






Source: www.smartraveller.gov.au Depends if your mine/project is here… …or here!




Escondida & Zaldivar copper mines, Chile

Source: Google Earth

Daisy Milano gold mines, Western Australia

40km

4km


Perceived vs actual non-technical risk

“Risk perception surveys like the Fraser Institute rankings are clearly a very

good start, but do not quantify and weight risks clearly. Much more work

remains to be done across the broad subject area of non-technical risks,

particularly in the space connecting high-level risk assessment with on-

ground mitigation.”




Perceived vs actual non-technical risk


PE

RC

EP

TIO

N

ACTUAL

ACTUAL PROBLEMS Solving these should also improve

the perception problems.

PERCEPTION PROBLEMS Focus needs to be improving

image and reputation, rather than

“actual” problems.

UNREALISED PROBLEMS Focus needs to be on resolving

unrealised, underlying issues before

they damage brand and reputation.

NO PROBLEMS! The actual situation and outsiders

perception of it is good.

Sources: Sykes & Trench (2014c)


The granularity non-technical risk


LOW

BROAD REGIONAL

PREDICTION

HIGH

PROSPECT SCALE SCALE

RE

LA

TIV

E

EF

FE

CT

IVE

NE

SS

DETECTION

Camp scale decision

COST

FLEXIBILITY

?

We should now be able

to detect non-technical

risks earlier here?

We can probably

foresee (predict?)

non-technical risk

here?

Can we link

the two?

Sources: Modified from McCuaig et al., (2014); McCuaig et al., (2010)


In summary:

Think more about non-technical risk!

“The general thesis here is that the assessment of technical

risk is advancing considerably and rapidly across the minerals

sector. Conversely, the understanding and assessment of

non-technical risk (and of the interplay of non-technical risk

with technical risks) remains in its infancy.




Thank you



Further reading • Trench, A., Packey, D., & Sykes, J.P., 2014. Non-technical risks and their impact on mining.

Monograph 30 – Mineral Resource & Ore Reserve Estimation – The AusIMM Guide to Good

Practice. Second Edition. Chapter 7: Risk in Resource and Reserve Estimation: pp. 605-618.

• McCuaig, T.C., Vann, J.E., & Sykes, J.P., 2014. Mines versus Mineralisation – Deposit Quality, Mineral Exploration Strategy and the Role of

‘Boundary Spanners’. Proceedings of the AusIMM & AIG 9th International Mining Geology Conference: pp 33-41.

• Sykes, J.P., & Trench, A., 2014a. Resources versus Reserves: Towards a systems-based understanding of exploration and mine project development

and the role of the mining geologist. Proceedings of the AusIMM & AIG 9th International Mining Geology Conference: pp 243-270.

• Trench, A., & Sykes, J.P., 2014. Perspectives on Mineral Commodity Price Cycles and their Relevance to Underground Mining. Proceedings of the

AusIMM 12th Underground Operators’ Conference: pp 19-31.

• Sykes, J.P., & Trench, A., 2014b. Finding the copper mine of the 21st century: Conceptual exploration targeting for hypothetical reserves. Society of

Economic Geologists Special Publication 18: pp. 273-300.

• Sykes, J.P., & Trench, A., 2014c. Australia versus The World: The perceived attractiveness of Australia’s mining industry in a global context. Centre

for Exploration Targeting Newsletter, 28 (June): pp. 6-9.

• Trench, A., & Packey, D., 2012. Australia’s Next Top Mining Shares: Understanding Risk and Value in Minerals Equities. Port Campbell Press: 410p.


non-technical risks and their impact on mining - trench, sykes & packey - oct 2010 - ausimm...

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